There are at least three payment types that are currently in common use. They are categorized temporally by when a user pays and when a user makes a purchase. The first payment type, cash or debit, allows a user to pay now and purchase now (i.e., a user pays when they purchase an item). A second payment type, prepaid, allows a user to pay now and buy later (i.e., a user funds an account, and later uses that account to make a purchase). The funds for the account may be provided from any number of different sources. A third payment type, credit, allows a user to pay later and buy now. In that situation, a user basically borrows money to make a purchase.
Currently, when a user desires to purchase an item using a particular account they must have the appropriate payment device on them. The desire to use a particular account can depend on the different and valuable rewards a user may receive for using one account as opposed to another account. The user often finds herself carrying a large number of payment devices when she goes shopping, with each payment device associated with a different reward program.
Digital wallets have been developed that allow a user to more conveniently use and manage multiple payment devices. However, these digital wallets do not remove the need to separately sign up and maintain various accounts. Further, the payment devices are not associated with each other in any way, nor does the wallet create associations between the payment devices. Digital wallets simply offer a better way of managing existing payment devices.
Multifunction cards currently exist that allow a user to have multiple functions on a single payment device. These types of payment devices are also called multitender when they combine different payment types. However, these cards suffer from some of the same disadvantages as single function cards. If a user desires one function that is installed on a multifunction card, such as a credit function, they also need to accept all the other installed functions on the multifunction card. This “package deal” type of offer from an issuer can result in a user paying unnecessary fees for the additional functions they don't use, and can even result in a user carrying a large number of payment devices. Meanwhile, the user ends up using just one function from the multiple functions on the payment device.
Both digital wallets and multifunction cards also suffer from the problem that a user may sometimes purchase an item using one payment device, such as a debit card, but have insufficient funds to complete the transaction. This results in a merchant having to take steps to either get sufficient payment from the user, or retrieve the item that was purchased (if possible), otherwise the merchant will take a loss on the transaction. A user may also be charged substantial fees by a bank for having insufficient funds in an account to complete a transaction.
For example, a user may attempt to pay for a coffee using a multifunction card that has both a credit function and a prepaid function. The user may choose the credit function to purchase the coffee, but have the transaction denied because of an insufficient credit limit, even though the prepaid function had sufficient funds to purchase the coffee.
This denial of the transaction and assessment of a fee to the user can be both embarrassing and aggravating. These feelings may even be enhanced when a user has a digital wallet or multifunction card associated with other functions that could have completed the transaction.
Related to the above problem of separate functions in a digital wallet or multifunction card is the corresponding separate reward program associated with each function. Reward programs reward a customer for certain types of behavior. Rewards may be provided to a user for making payments/purchases of a certain amount or type, for performing certain activities, for purchasing from particular businesses, or simply for maintaining accounts. One way reward programs build loyalty is by rewarding a customer based on the value of their payments. Another way is to reward customers for purchasing specific items.
Although the reward earned from various reward programs can be valuable, it can be difficult to accumulate sufficient reward value to receive a meaningful reward from the program. This is especially true when each payment device is associated with a separate reward program with a different structure and set of rules. For example, a user may use a credit card for travel purchases, but a debit account for purchases at a grocery store. Although each may reward the user with points that can be redeemed for more travel and more groceries, respectively, the points cannot be combined.
When a user utilizes a payment device at the point of sale, the merchant is charged a fee depending on a number of factors, which may include, the amount of the transaction, a fixed transaction fee, and/or volume discounts. For example, a merchant may be charged $2 per transaction, for a $100 purchase by the user. These fees are set by the provider of the function, and may differ between providers. For example, one provider may have a lower fee for processing credit transactions than another provider. In multifunction cards, the fee charged to the merchant also depends on the type of function being used. Therefore, there is a disincentive to an issuer of multifunction cards to combine functions that charge a low fee, with functions that charge a high fee. The user (with or without merchant incentives) may choose to utilize the low fee function to the detriment of the function provider.